Recommend post (6) Santander UK, the Spanish-owned bank which saw its credit rating cut last night, requested a formal agreement with the City regulator that would prohibit any outflow of funds to its parent, I have learned.

The bank sought a regulatory order last December from the Financial Services Authority which imposes strict limits on Santander UK's exposure to its Spanish parent. In effect, that gives the FSA additional powers over the transfer of funds from the UK bank as well as an external governance 'firewall'.

The existence of the order has not previously been publicly disclosed and should go some way to alleviating lingering fears that the savings of Santander UK customers could somehow be siphoned overseas by Banco Santander in Madrid if it ever faced a funding crisis.

Santander UK was downgraded one notch by Moody's last night, although even after the downgrade it is rated at the same level of creditworthiness as the state-backed Royal Bank of Scotland (RBS).

The other major UK banks are bracing themselves for further downgrades in the coming weeks, with Moody's pledging to deliver its verdicts by the end of next month.

Santander acquired Abbey, Alliance & Leicester, Bradford & Bingley and hundreds of branches from RBS to turn it into one of the major forces in British high street banking.

An FSA spokesman told me tonight:

"We can confirm Santander UK is regulated by the FSA. As a UK-regulated bank it is covered by the deposit insurance protection of the UK FSCS . With the full cooperation of Santander UK the FSA has in place arrangements which requires the FSA to give permission to any transfer of funds out of the UK by Santander UK."

I'm told that the three major rating agencies were informed about the regulatory agreement with the FSA, which may go some way to explaining why Santander UK continues to be more highly rated than its parent.

And industry insiders tell me that they expect Santander UK to be relatively highly-rated in the context of its UK competitors once Moody's announces its ratings decisions on them in the coming weeks.

Santander UK has seen an outflow of roughly £200m today as customers reacted to news of the downgrade. That sounds like a significant sum of money but is in reality less than 0.2 per cent of its £150bn deposit base.

The other point worth making is that Santander UK's asset-base is overwhelmingly British, and much moreso proportionately than banks such as Barclays, which has a significant direct exposure to the Spanish economy. So the paradox is that the Spanish-owned bank is in one sense more British than the one founded in the UK well over three centuries ago.